RTX Q2 2025: Backlog Up 25% Boosts Revenue Visibility
- Robust Defense Demand and Backlog Expansion: Q&A participants highlighted strong defense dynamics—with customers placing significant orders (e.g., for Golden Dome and integrated air and missile defense programs) and a backlog that has grown noticeably (up approximately 25% since the end of 2023), which underscores solid long‑term revenue potential.
- Effective Tariff Mitigation Leading to Improved Margins: Management detailed proactive measures that have reduced tariff headwinds from an initial $850M estimate to $500M, reflecting aggressive mitigation actions that preserve operating margins and bolster the company’s earnings outlook.
- Strong Free Cash Flow Outlook and Operational Efficiency: The Q&A section underscored a robust free cash flow forecast of $7B to $7.5B for the full year, coupled with significant supply chain and operational improvements—factors that enhance efficiency and contribute to a sustainable profitability profile.
- Tariff Uncertainty and Exposure: Despite current mitigation efforts that reduced tariff cost expectations from $850M to $500M, management cautioned that any change in rates—such as a potential increase after August 1—could adversely affect margins if not fully absorbed.
- Nonrecurring Charges and Credit Risks: The call highlighted concerns such as an airline customer bankruptcy at Pratt and ongoing restructuring initiatives at Collins that could lead to additional charges or future losses if these issues persist.
- Execution and Revenue Conversion Risks: While a robust backlog and strong demand were noted, management did not specify the timeline for converting programs like Golden Dome into revenue, raising concerns that delays in execution or supply chain challenges could depress future earnings.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +9.4% | The overall revenue grew from $19,721 million in Q2 2024 to $21,581 million in Q2 2025, building on robust organic growth seen in previous periods. Strong performance in both commercial aerospace and defense segments—driven by higher sales in Pratt & Whitney and Collins Aerospace—has continued to underpin overall revenue growth. |
U.S. Revenue | +1% | U.S. revenue increased modestly from $11,625 million to $11,737 million, reflecting a more mature domestic market. This modest change contrasts with the sharper gains in earlier periods (e.g., the $2.1 billion increase in Q1 2024 driven by organic sales across segments) and suggests that growth in the U.S. market has stabilized. |
European Revenue | +17% | European revenue jumped from $3,589 million to $4,205 million, reflecting continuing momentum from previous gains (for example, Q1 2024 saw revenues grow from $2,990 million to $3,833 million). This improvement is largely driven by increased sales in key segments such as Pratt & Whitney and Collins Aerospace in response to robust demand in both commercial aerospace and defense markets. |
Asia Pacific Revenue | +28% | Asia Pacific revenue surged from $2,661 million to $3,410 million, which builds on earlier improvements—previously from $2,050 million to $2,427 million in Q1 2024. The acceleration is likely due to increased commercial air traffic and higher engine (Pratt & Whitney) sales, indicating that the region is experiencing dynamic market growth. |
Middle East and North Africa Revenue | +14% | MENA revenue grew from $791 million to $904 million, in line with earlier trends (Q1 2024 increased from $763 million to $849 million). This consistent rise is driven mainly by increased defense system sales, such as those from Patriot and NASAMS programs, reflecting sustained regional defense spending. |
Other Regions | +26% | Revenue in Other regions increased from $1,055 million to $1,325 million, marking a substantial turnaround from a previous slight decline. Operational improvements and market adjustments—possibly following earlier challenges like sanctions and adverse product mix [e.g., a $175 million charge in Collins Aerospace]—are likely key contributors to this strong performance. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted Sales | FY 2025 | no prior guidance | $84.75 billion to $85.5 billion | no prior guidance |
Organic Sales Growth | FY 2025 | no prior guidance | 6% to 7% | no prior guidance |
Commercial Aftermarket Sales Growth | FY 2025 | no prior guidance | Low teens | no prior guidance |
Commercial OE Sales Growth | FY 2025 | no prior guidance | High single digits year-over-year | no prior guidance |
Defense Sales Growth | FY 2025 | no prior guidance | Mid-single digits | no prior guidance |
Adjusted EPS | FY 2025 | no prior guidance | $5.80 to $5.95 | no prior guidance |
Free Cash Flow | FY 2025 | no prior guidance | $7 billion to $7.5 billion | no prior guidance |
Effective Tax Rate | FY 2025 | no prior guidance | 19.5% | no prior guidance |
Tariff Costs | FY 2025 | no prior guidance | $500 million total tariff costs; $600 million cash impact | no prior guidance |
Collins Aerospace – Sales Growth (Adjusted) | FY 2025 | low single digits | mid-single digits | raised |
Collins Aerospace – Sales Growth (Organic) | FY 2025 | mid-single digits | high single digits | raised |
Collins Aerospace – Operating Profit Growth | FY 2025 | $500 million to $600 million | $275 million to $350 million | lowered |
Pratt & Whitney – Sales Growth | FY 2025 | high single digits | low double digits | raised |
Pratt & Whitney – Operating Profit Growth | FY 2025 | $325 million to $400 million | $200 million to $275 million | lowered |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Robust Defense Demand and Backlog Expansion | Previously discussed in Q1 2025, Q4 2024, and Q3 2024 as strong defense demand, high book‐to‐bill ratios, and substantial backlog growth with international expansion. | Q2 2025 emphasized exceptionally strong demand with a 1.86 book‐to‐bill ratio and a backlog of $236 billion driven by notable wins and increased defense spending. | Consistent strong performance with continued growth in demand and backlog expansion. |
Tariff Impact: Mitigation Efforts and Uncertainty | In Q1 2025, mitigation strategies (duty drawbacks, pricing actions, supplier diversification) were noted; no mention in Q4 2024 and Q3 2024. | Q2 2025 detailed a revised tariff cost projection (from $850M to $500M), active mitigation efforts, and explicit discussion of uncertainty and cash impact. | An emerging and more prominently managed theme with a higher focus on active mitigation strategies. |
Supply Chain Resilience and Challenges | Q1 2025, Q4 2024, and Q3 2024 featured discussions on improvements in material receipts, reduction in overdue items, capacity expansion, and supplier management challenges. | Q2 2025 reported further improvements (structural castings up 20%, reduced overdue line items) and ramp-up challenges, emphasizing proactive management and production readiness. | A recurring topic showing continuous improvement while managing production ramp-ups and operational challenges. |
Free Cash Flow Strength and Margin Performance | Q1 2025, Q4 2024, and Q3 2024 highlighted rising margins, robust free cash flow generation, and positive segment operating profit improvements. | Q2 2025 reported near breakeven free cash flow in the quarter due to a Pratt work stoppage, but maintained a strong full‐year outlook and solid margin expansion across segments. | Consistently positive outlook with minor short-term disruptions but strong long-term performance. |
Execution and Revenue Conversion Risks | Q1 2025, Q4 2024, and Q3 2024 touched on execution focus, backlog conversion, and operational improvements though explicit risk language varied. | Q2 2025 emphasized a focus on executing the backlog, ramping up production, and investing in supply chain capacity to mitigate revenue conversion risks. | A consistent focus on overcoming operational risks with an ongoing commitment to execution and conversion of backlog into revenue. |
Nonrecurring Charges and Credit Risks | Q4 2024 and Q3 2024 mentioned nonrecurring charges (e.g., acquisition adjustments, restructuring costs) with minimal focus on credit risks; Q1 2025 did not include this topic. | Q2 2025 reported a nonrecurring charge at Pratt related to an airline bankruptcy and a sizable restructuring charge at Collins, indicating isolated concerns. | A variable topic with nonrecurring charges surfacing due to specific incidents; credit risks remain limited. |
Labor Negotiation and Workforce Risks | Q1 2025 provided discussion on upcoming union negotiations at Pratt with cautious optimism regarding long-standing relationships ; Q3 2024 and Q4 2024 did not mention the topic. | Q2 2025 did not feature discussion on labor negotiations or workforce risks. | A topic that was discussed earlier but is no longer a focus in the current period, possibly indicating resolution or lower relevance. |
Declining Pension Income Impact | Discussed in Q4 2024 and Q3 2024 as a headwind (with a $0.15 impact in Q4 2024 and partial offset in EPS) and noted declining pension income due to de-risking actions. | No mention in Q2 2025 earnings call. | A topic no longer highlighted in the current period, suggesting it has receded from management’s immediate focus. |
Investment in R&D and Innovation | Q1 2025, Q4 2024, and Q3 2024 showcased heavy investment in new product developments (GTF Advantage, LTAMDS, AI use cases) and robust R&D spending supporting long-term growth. | Q2 2025 continued this focus with announcements on partnerships (Shield AI, Kongsberg for Ghost Eye radar) and deployment of a proprietary data analytics and AI platform. | A consistently strong strategic focus with sustained and expanding investments in innovation and technology. |
European Defense Spending and Strategic Tailwinds | Q1 2025 and Q4 2024 discussed robust European defense spending, including an $850 billion EU initiative and strong international partnerships, while Q3 2024 had no specific mention. | Q2 2025 emphasized increased defense spending among NATO allies (targeting 3.5% of GDP), expanded regional partnerships (e.g., with Spain), and strong strategic tailwinds globally. | A recurring, positively viewed theme reinforcing international opportunities and RTX’s strategic positioning in the European market. |
Strategic Pivots and Business Segment Underperformance | Q3 2024 and Q4 2024 provided commentary on portfolio evaluations, underperformance in specific segments (e.g., parts of Raytheon’s air and space defense, Collins’ commercial OE volume) and potential pivots ; Q1 2025 had minimal related discussion. | Q2 2025 did not mention strategic pivots or segment underperformance, with the focus instead on overall strong performance and growth in key areas. | A topic that was discussed in prior periods but has receded in the current period, suggesting an improved or stabilized performance across segments. |
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Multiyear Outlook
Q: When will pipeline orders convert to revenue?
A: Management emphasized strong, growing demand—evident from a robust book-to-bill of 1.35 and increasing backlog—with awards expected to ramp over the coming years, though they did not specify exact timing. -
Free Cash Flow
Q: Can free cash flow sustain levels above net income?
A: They expressed confidence in strong operational free cash flow—over 100% of adjusted net income—with improvements from recovery actions and tax benefits, even though no explicit $10B floor was set. -
Margin Trajectory
Q: Are margins on track to hit 12%+?
A: Management is pleased with margin expansion driven by a better sales mix and productivity gains, positioning Raytheon to approach 12%+ margins through ongoing cost efficiencies and favorable international orders. -
Tariff Impact
Q: Are tariffs hurting U.S. airline demand?
A: Despite tariff headwinds estimated at $500M, mitigations like USMCA and pricing actions have stabilized the impact, and airline demand remains broadly resilient. -
Tariff & R&D Benefits
Q: What are current tariff rates and R&D tax impacts?
A: The team currently factors a $500M tariff impact with benefits from proactive mitigations, while R&D capitalization reversals are yielding modest, ongoing tax benefits that help offset headwinds. -
AOG Reduction & Nonrecurr. Items
Q: Will AOGs decline and nonrecurring charges normalize?
A: Management noted that AOG levels have stabilized and are poised to drop significantly with increased MRO output, while nonrecurring items like a customer bankruptcy at Pratt and Collins’ restructuring are being effectively managed. -
Aftermarket MRO
Q: Is Pratt aftermarket growth sustainable post-peak?
A: Although Pratt posted a high of 24% growth earlier, the outlook now points to steady, mid-teens growth as the mix balances between spares, installations, and MRO. -
OE Production
Q: Are Boeing and A320 production rates stabilizing?
A: The outlook reflects stabilization in Boeing narrow and wide-body rates and a continued ramp in A320 production, even as they work through minor operational challenges. -
Supply Chain & GTFA Rollout
Q: How are GTFA production and the supply chain evolving?
A: With GTFA production already underway and improvements like over 20% gains in structural casting throughput, the phased rollout is designed to ensure supply chain stability during the transition. -
Missile Defense Outlook
Q: What’s the future for Golden Dome and LTAMDS?
A: Management sees Golden Dome as a natural extension of their proven Patriot systems, with LTAMDS entering production to enhance integrated air and missile defense over the coming decade. -
FAA Modernization
Q: How is RTX involved in FAA upgrades?
A: RTX is well positioned to benefit from FAA modernization efforts—with strong radar and automation capabilities playing key roles—supported by a $12.5B funding component in the reconciliation bill. -
GTF Hot Section Plus
Q: Who covers retrofit costs for GTF Hot Section Plus?
A: Cost responsibility for GTF Hot Section Plus is assessed on a customer-by-customer basis, ensuring that the significant 90–95% time-on-wing benefit translates into improved margins over time. -
Pratt Margins
Q: What medium-term margin rate is expected for Pratt?
A: Pratt’s margins are anticipated to expand steadily into the low to mid-teens, bolstered by a favorable mix in both new engine deliveries and profitable aftermarket services. -
Aftermarket Capacity & R&D Refunds
Q: Has MRO capacity improved and how are R&D refunds structured?
A: There’s been a notable 22% increase in MRO output reflecting better capacity, while R&D tax adjustments are yielding ongoing refunds as capitalized expenses are now deducted over time.
Research analysts covering RTX.